European Parliament unites against Chinese MES

In a move that could change the lines of the debate, the European Parliament’s left and right have united to oppose the Council and Commission over Chinese market economy status. EURACTIV France reports.

The European Parliament put on a rare show of unity yesterday (10 May), during a debate on whether to grant China market economy status (MES). “This unanimity is touching,” said Emmanuel Maurel, a French Socialist MEP (S&D).

Lawmakers from both sides of the chamber firmly opposed the plan to grant China a status that would allow it to contest European customs barriers.

MEPs have started to draw their red lines on whether the EU should recognise China as a ‘market economy’, ahead of a first orientation debate in the College of Commissioners on Wednesday (13 January).

The debate was initiated by the Socialists & Demoncrats. But the recent case of dumping in the steel sector has drawn more widespread attention to the questionable trading behaviour of Asia’s largest economy.

“The Commission had planned to ratify this step discretely in December,” said Edouard Martin, a French former trade unionist turned Socialist MEP.

Since the issue has been on the Parliament’s agenda, it has generated a tidal wave of opposition.

MEPs will vote on a resolution on the subject tomorrow (12 May). Their position will make life more difficult for the Council and the Commission, which are broadly in favour of officially recognising China as a market economy.

Lukewarm promises

“Beware, we should be sceptical of lukewarm promises, said Franck Proust, a French Republican MEP (EPP group).

“The European Council says it want to grant the status and then establish safeguards. This is not a solution,” the trade specialist added.

China is used to getting its own way in dealings with EU member states. The only EU leader to have stood up to the Asian powerhouse so far is the Italian Prime Minister Matteo Renzi.

The stakes are high for Italy: its economy would be highly exposed in all seven of the sectors most affected by China’s potential change in status.

“The first one to stick their neck out will get it chopped off by the Chinese,” Martin said. Member states fear targeted retaliation measures if they do not give China what it wants.

After the European Commission belatedly stepped in to protect Europe’s photovoltaic panel industry against Chinese dumping, French winemakers gained bitter experience of just how quickly the door to the Chinese market can close.

“We need to start organising the response already: we should put in place a compensation fund for the sectors that may be exposed, financed by a tax on Chinese products,” said Proust.

Trade ministers met on Tuesday (2 February) to weigh options presented by the European Commission on the thorny issue of granting China market economy status.

A graded response?

But this solution is not popular with the Netherlands, which currently holds the rotating Council presidency, and whose port of Rotterdam is highly dependent on Chinese trade. Like that of the United Kingdom, the Dutch economy is heavily oriented towards finance and services and does not have much industry to lose.

“As with other subjects, a new geographical divide is emerging: North-West against South-East Europe,” said Proust.

To avoid any diplomatic problems with China, the right wing French Republican party has proposed a graded response, including asking the WTO to deliver a reasoned opinion on the subject before ratifying anything. This would allow the EU to open a new observation period of one or two years.

On top of this graded response, the Republican MEP believes the EU should minimise the risk of retaliation by developing a common position with Japan and the United States.

In the 15 years since China joined the WTO, the reforms it promised have not taken place, and from a European point of view, unfair competition has continued in several sectors. Seven industrial sectors would be severely affected by unfair competition from China if it was granted market economy status, including wood, ceramics and bikes.

Chinese Ambassador to the EU, Yang Yanyi, has called on member states to moderate their tone and take a constructive attitude. In an op-ed published in EURACTIV, Ambassador Yanyi said China is pushing through comprehensive reform and further opening up with the determination of a “warrior who cut off his wounded wrist to save his life”.

“For example, to effectively deal with the overcapacity problems of the steel industry, China has made unremitting efforts to control new capacity and eliminate outmoded capacity,” she wrote.

Looking ahead, China and the EU, who share the timely goal of transforming their growth models, should find ways to manage their differences in a constructive way and adopt new initiatives, writes Yang Yanyi.

Background

EU relations with China were established in 1975 and are governed by the 1985 EU-China Trade and Cooperation Agreement and seven other legally binding agreements.

Besides the annual meeting of the countries' leaders, the main three pillars are the High Level Economic and Trade Dialogue (launched in 2007), the Strategic Dialogue (2010) and the High Level People-to-People Dialogue (2012).

The EU is China's biggest trading partner, while China is the EU's largest source of imports and second largest two-way trading partner. Rising trade and financial flows between the EU and China in the last decade have considerably heightened their economic interdependence.

The EU remains China's biggest trading partner while China is the EU's second largest trading partner.

In 2012, the European and Chinese leaders agreed to intensify technical discussions to begin negotiations on an investment agreement "as soon as possible".

Timeline

December 2016: WTO to re-examine China's terms of membership and decide whether or not to grant market economy status.